27 March 2015

China's accelerating aid profile in the South Pacific

SHOULD America be concerned that Chinese aid to the military micro-state of Fiji has now eclipsed that of Australia, previously its biggest donor?

That is one the central issues raised by a new report published this month by the Lowy Institute, a think-tank based in the Australian city of Sydney.

The institute calculates that China has forked out nearly $1.5 billion in bilateral aid to the Pacific region since 2006—more than France or the European Union, and closing in on aid levels from the long-time Pacific partners of Japan and New Zealand.

Historical ties still count for much. Across the region, Australia remains easily the Pacific Islands’ biggest donor, contributing $6.8 billion in aid from 2006 to 2013.

But the government of Tony Abbott, which took office in 2013, has since slashed its generous program. Much of what is being distributed now pays the price of keeping local politicians amenable to troubled detention centres on Manus Island, in Papua New Guinea, and on the microstate of Nauru, where Australia sends its unwanted asylum-seekers.

America is still the region’s second-biggest giver of aid, contributing $1.7 billion between 2006 and 2013. But more than half of that went to the country’s satellite states in Micronesia, such as Guam and the Northern Marianas.

When Hillary Clinton, then America’s secretary of state, attended the Pacific Islands Forum in the Cook Islands in 2012, she promised the region more attention. It was all of a piece with President Barack Obama’s vaunted “rebalancing” of America’s strategic posture towards Asia and the Pacific. Yet aid, expected to rise, has remained stagnant.

By contrast the expansion of Chinese help has been striking. At a summit in 2013 in the southern Chinese city of Guangzhou, China pledged tariff reductions on imports from islands in the South Pacific and $1 billion in preferential loans to them. China’s president, Xi Jinping, visited Fiji in November 2014, promising yet more development loans. China’s aid to the troubled island republic has since mushroomed.

Some observers have fretted that Chinese moves, in particular a meaty aid package signed in 2006, shortly before a coup, have undermined democracy in Fiji. Others point out that China also contributed $780,000 to the cost of running elections in September.

Chinese assistance to these small island states certainly comes at a price. Some now have hefty levels of debt; when difficulties in meeting repayments arise, debts are more likely to be rescheduled than forgiven.

In the kingdom of Tonga, two-thirds of its external debt is owed to Eximbank, China’s foreign-aid bank, alone. Loan funds end up with Chinese firms bidding for government contracts. Raw materials and labour are mostly imported from China too.

The result for Pacific islanders is a shiny stadium or gleaming new hospital without the benefits of either extra jobs or more money circulating in the local economy. As in Africa, Chinese investment in the Pacific Islands has been largely resource-driven.

The $1.6-billion Ramu nickel mine in Papua New Guinea is easily the largest of China’s Pacific operations. A Chinese firm, Zhongrun International, is now the majority owner of Fiji’s Vatukoula gold mine. Another, Xinfa Aurum, is mining bauxite on Fiji’s second-largest island, Vanua Levu.

For most Pacific Islanders, however, the most obvious sign of China’s increased presence is inward migration. This swelling diaspora, made up mostly of small-scale traders, has happened independently of China’s aid push.

Indeed it is burgeoning in some of the Pacific countries that recognise Taiwan (and thus have no diplomatic links with China). Riots in 2006 in the Solomon Islands and Tonga, and again in 2009 in Papua New Guinea, targeted such Chinese, and in some cases China evacuated its citizens. In the Pacific, China’s attention may before long be taken up with having to protect its overseas workers more.